Earnings, confidence in stimulus boost US stocks

US stocks charted another winning week, riding the wave of good-enough earnings and growing confidence that the US Federal Reserve will maintain an aggressive stimulus for a while longer.

The week’s gains were not as robust as the prior week’s and there was one day — Wednesday — when doubts took hold and pushed stocks lower. Regardless, all three indices ended the week solidly higher.

The Dow Jones Industrial Average rose 170.63 (1.10 percent) to 15,570.28, while the broad-based S&P 500 put on 15.27 (0.88 percent) to reach a new all-time high of 1,759.77 as the tech-rich NASDAQ Composite Index increased 29.08 (0.74 percent) to 3,943.36.

After several weeks focused on Washington’s political soap opera, corporate news came to the forefront with a plethora of earnings reports from leading firms.

Standouts included Dow component Boeing Co, which raised its earnings forecast and announced that it was upping production of its 787 Dreamliner plane, which remains popular despite experiencing battery problems.

Other strong reports came from tech icons Amazon.com Inc, which continued to lose money even as revenue rose 24 percent to US$17.1 billion, and Microsoft Corp, a Dow component that said profits surged 17 percent to US$5.2 billion.

The deluge of reports included a handful of disappointments from Coach Inc, Cameron International, Symantec Corp, Xerox Corp, Eastman Chemical Co and Dow component Caterpillar Inc, which slashed its profit forecast for the third straight quarter in the wake of a downturn in mining investment.

Analysts have described the overall earnings season as fairly solid, with investors punishing individual underperformers, while bidding the market as a whole higher.

Of the 245 companies in the S&P 500 that have reported so far, 165 have beaten analyst expectations, 46 have missed and 34 have come in on target, according to a report by S&P Capital IQ.

However, of the 54 companies that have provided an outlook on the fourth quarter, 42 are negative, eight are positive and four are in line with forecasts, the report said.

Scott Wren, senior equity strategist at Wells Fargo Advisors, said that what has stood out about earnings season has not been the results, but the tone of companies.

“No one is overly optimistic,” said Wren, who attributed the caution partly to the fiscal wars.

Companies are reluctant to ramp up investment given the lack of clarity about federal taxation policies and regulation, analysts say.

The uncertainty about Washington “has hurt the real economy more,” BMO Private Bank market strategist Brent Schutte said. “It hasn’t hurt the market because the market, in my mind, has gotten more used to it and the market believes that it keeps the Fed in the game. It’s almost like it’s a backward positive for the market.”

There have been signs in recent days that the “bad news is good news” rule has begun to govern again, with investors greeting poor or mediocre economic data as a sign the US Federal Reserve will not scale back its US$85 billion per month bond-buying program soon.

The best indication of that came on Tuesday, when stocks bolted higher after a US Department of Labor report showed the country added just 148,000 jobs last month, well below the 183,000 forecast.

The upcoming week features a barrage of economic data, including readings on industrial production, retail sales, consumer confidence and housing prices.